Education - Social Policy Bonds

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This was written in 2013, as an edited version of a blog post done in August of that year, in reaction to US President Obama's proposed accreditation reforms for higher education, as outlined in his State of the Union address.

What educational outcomes should a Social Policy Bond regime target? Key criteria for a bond regime are:

  • that targets can be quantified accurately and

  • that they be inextricably linked to social well-being.


As with other variables like income, say, or nutrition or, more to the point, literacy, it is at the lowest levels that there is a strong correlation between indicators that we can measure easily and robustly, and societal well-being. So, for instance, we can measure functional literacy quite well, and universal literacy would most probably be widely unchallenged as a valid, worthwhile social goal. It is pleasing, then, to see that President Obama has proposed programmes aimed at providing early education for four-year olds from lower-income households. There are also measures to encourage higher graduation rates from high school. All very laudable, because at these levels of education there is a strong correlation between attendance at an educational facility and real, meaningful outcomes.


But things are much more complicated at higher levels of education. For many of us more learning can be an end in itself, but at some point it becomes questionable whether such learning is a government responsibility to be paid for from tax revenues. This is not to say that there should be no government subsidies for university education or post-doctoral research; it is just to question what proportion of society's scarce resources should be allocated to it. It's a matter for society to discuss, considering the outcomes we want, in relation to other policy priorities. Some social outcomes result only indirectly from education and, under a Social Policy Bond regime, we'd probably do better to target those outcomes themselves. For example, it would be more efficient to target unemployment directly, rather than indirectly through the educational system. Under a Social Policy Bond regime we could do that explicitly, and it would be up to investors in
bonds targeting unemployment to work on education and training to the extent to which they throught that were an efficient way of achieving the unemployment objective.

It would be better to do that, by far, than to target the supposed means toward achieving an employment target via such things as "graduation rates, costs, average amount borrowed etc", which are the focus of President Obama's reforms. These are less ends in themselves than supposed means to an end (or various ends). All
our experience tells us that such narrow, short-term, top-down, goals can - and will - easily be gamed or manipulated or will just not end up doing what they are supposed to. Obama's reforms concentrate heavily on strengthening the regulation of institutions. This might be praiseworthy, but it would be much better to see fewer administrative fixes and more targeting of specific broad outcomes, which, under a bond regime, would motivate investors in to make their own decisions about how best to achieve them. We need diverse, adaptive solutions of the sort that government just cannot manage. Government, under a Social Policy Bond regime scheme, would still ultimately subsidise or pay for the achievement of these goals, and raise the revenue for their achievement, but it would contract out the actual achievement to investors.

As happens so often with government everywhere, President Obama's proposals take the existing institutions as a given. They take the existing institutional framework as a given too. (I suspect Obama's healthcare proposals suffer from the same problem.) It would be more efficient, as well as more transparent, to think carefully about all our social goals, in broad terms, and target those specifically. I think these would include high employment, universal literacy, lower crime rates, better physical and mental health and a few others. Education is, in my view, a means to those ends - and others, less easily specified which perhaps should not be a government remit at all.

So President Obama's proposals for higher education reform are undoubtedly well meaning, and arguably positive, given the existing framework. But the existing framework should be challenged. Making existing institutions work towards more targets might do some good but, as in other policy areas, it is likely to entrench the existing, increasingly dysfunctional, institutional structure at a time of rapid social and technological change. Instead of micro-managing the current system we need to clarify exactly which outcomes we, as a society, want to see, and which ones we think government can legitimately and usefully target. And we need to reward people for achieving those outcomes, however they do so and, specifically, whether or not they work within the existing institutional framework.

For further papers on the theme of literacy, click on Women's literacy, under Applications, in the left-hand menu

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